Questions often arise on the treatment of tax debt in bankruptcy. With the 2005 changes in mind, taxes are generally dischargeable in Chapter 7 if they meet five rules:
1. The tax was due more than 3 years prior to the date of filing bankruptcy. Extensions count!
2. The tax return was filed more than 2 years prior to the date of the bankruptcy. If no return was filed and the IRS did an SFR (substitute for return), this is not considered a filing. On the other hand, if the IRS did an SFR with assistance from the taxpayer, this would be considered a filed return.
3. There was an assessment more than 240 days before the date of the bankruptcy filing.
4. The tax returns were not fraudulent.
5. There was no willful attempt to evade the tax.

Keep in mind that Federal tax problems usually means that there are also looming state tax issues.

Chapter 13 has a few other important points to keep in mind, and we will visit these in another post.